TERM PAPER ON ITC LIMITED (TOBACCO DIVISION
FOR STRATEGIC MANAGEMENT AND SUPPLY CHAIN MANAGEMENT UNDER THE GUIDANCE OF PROF. ASOKUMAR VIT BUSINESS SCHOOL VIT UNIVERSITY
COMPLETED BY AYYAPPAN (07 MBA 000) M. KARTHIK (07 MBA 050) K.A. GOPINATH (07 MBA 039) J. KARUNANITHI (07 MBA 053) S. MAHENDRAN (07 MBA 058) MOHAMMAD NAUFAL (07 MBA 063)
ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 18 billion and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today.ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times.ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills.Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India.ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.
ITC was the first company in India to voluntarily seek a corporate governance rating.ITC employs over 24,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3,75,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. ITC’s VISION Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company’s stakeholders ITC’s MISSION To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value
THE ITC LEADERSHIP Flowing from the concept and principles of Corporate Governance adopted by the Company, leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the whole time Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is responsible for and totally focused on the management of its assigned
ITC - Business Portfolio ITC
FM CG: Cigar ettes Ot her FM CG
Agr i Business Lea f Toba cco Agr i Com odit ies m
Pa per boar d Pa per & Pa ckaging
As already stated earlier we will be studying the ITC’s Tobacco products only.
FMCG - Cigarettes
Historical Overview of Tobacco in India Tobacco cultivation has a history of about 8000 years. Europeans were introduced to tobacco when Columbus landed in America in 1492. Portuguese traders introduced tobacco in India during 1600. Tobacco’s easy assimilation into the cultural rituals of many societies was facilitated by the medicinal (and perhaps intoxicating) properties attributed to it. Tobacco became a valuable commodity in barter trade and its use spread rapidly. Introduced initially in India as a product to be smoked, tobacco gradually began to be used in several other forms. Paan(betel quid) chewing became a widely prevalent form of smokeless tobacco use. Although some Chinese and European systems of medicine supported the use of tobacco, Ayurveda—the Indian system of medicine—never supported the use of tobacco as medication. The ill effects of tobacco use on human health were recognized even in the sixteenth century, which led to restrictions on its use. Tobacco thrived everywhere in the world despite social (and some religious) disapproval. Indian tobacco industry:
A view Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products. The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco. The Indian tobacco industry India is the second largest producer of tobacco in the world after China. It produced 572 m kgs of tobacco in FY03. However, India holds a meager 0.7% share of the US$ 30 bn global trade in tobacco, with cigarettes accounting for 85% of the country's total tobacco exports. Despite being the second largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country. CIGARETTES: ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan,
Berkeley, Bristol and Flake. ITD (Indian Tobacco division) also sells two luxury filter brands of its parent company Benson & Hedges and 555. The Company has been able to build on its leadership position because of its single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. This strategic focus on the consumer has paid ITC handsome dividends. ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. In the extremely competitive US market, ITC offers high-quality, value-priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key player in the GCC markets through growing volumes of its brands. ITC's cigarettes are produced in its state-of-the-art factories at Bengaluru, Munger, Saharanpur and Kolkata. These factories are known for their high levels of quality, contemporary technology and work environment. LEAF TOBACCO ITC pioneered the cultivation and development of Leaf Tobaccos in India. The Leaf Tobacco business' partnership with the farmer is also almost 100 years old. ITC is the largest buyer, processor and exporter of leaf tobaccos in India - creating a global benchmark as the single largest integrated source of quality tobaccos. Serving customers in 48 countries across more than 69 destinations, ITC co-creates and delivers value at every stage of the leaf tobacco value chain. ITC buys nearly 50 per cent of all tobacco types grown in India. It has a team of experienced, highly skilled and professional buyers and classifiers who source and segregate tobaccos to exacting customer specifications.
A large inventory base of quality tobaccos provides an edge in serving customers through product customization, portfolio rationalization, product bundling and value added services. This strategic direction insulates customers from crop fluctuations, a key 'winning proposition' acknowledged worldwide. ITC's comprehensive and sophisticated R&D facilities cover all aspects of cultivation, product development and processing through fundamental and applied research. Thus, ITC's value proposition to its customers is "On Time In Full" delivery of quality tobaccos spanning across all tobacco types at competitive prices. ITC's Green Leaf Processing plants at Chirala and Anaparti in Andhra Pradesh, the tobacco hub of India, are benchmarked with the best in the world. State-of-the-art technology, shared product knowledge base, sophisticated process and quality controls enable ITC to process and deliver 120 million Kgs of high quality tobaccos annually. These factories have integrated warehousing complexes that match international standards in hygiene, infestation control and monitoring. ITC's quality emanates from its intimate involvement with the tobacco farmers in India. Effective reach mechanisms help transfer 'best practices' from the lab to the land. With an extensive presence in rural India, ITC's Leaf Tobacco business maps critical Soil, Crop and Process control parameters across cultivated areas. Intermediation through a dedicated pool of trained managers in critical areas like soil testing, varietal improvements, vermicomposting, nutrient management and post harvest management results in a superior agri output. These initiatives position ITC as an integral part of India's agricultural landscape. ITC's collaboration with related Government agencies has helped develop new varieties of tobaccos and explore new areas for tobacco cultivation.
Components of a Cigarette
1. Filter made of 95% cellulose acetate. 2. Tipping paper to cover the filter. 3. Rolling paper to cover the tobacco. 4. Tobacco blend.
Supply Chain Management “..Supply Chain Management is Getting the right things to the right place at the right time, for profit”
New information and communications technologies have revolutionized today’s supply chains, making them extraordinarily better, faster, and cheaper Supply Chain Evolution Two hundred years ago, giant mechanical machines replaced labor to complete tasks in large factories. Railroads, electricity and new communications mediums expanded markets and also made supply chains better, faster, and cheaper. In the early 1900s, Henry Ford created the first moving assembly line, utilizing scientific management methods. This reduced the time required to build a Model T from 728 hours to 1.5 hours, and ushered in the mass production era. But in the 1970s, U.S. manufacturing’s superiority was challenged by lower costs and higher quality products from foreign firms in many industries. Starting in the early 1970s, Japanese manufacturers like Toyota changed the rules of production from mass to lean. Lean manufacturing focuses on flexibility and quality more than on efficiency and quantity. Components of supply chain The supply chain has basically four components:
Production: where businesses focus on how much to produce, where to produce it, and what suppliers to use. Inventory: where businesses decide where to store their products, and how much to store. Distribution: where businesses address questions about how their products should be moved and stored. Payments: where businesses look for the best ways to pay suppliers and get paid by customers.
The efficiency and effectiveness of a supply chain is contingent on the ability to gather and analyze important information through these components.
The Indian Tobacco Division has: 3 contract manufacturers (OCMs) 1) Reliable Cigarette and Tobacco Industries Private Ltd. (RCTI) 2) Asian Tobacco Company (ATC )
3) Hyderabad Deccan Cigarette Industries (HDC)
Huge distribution network with 19 marketing branches and 33 Godowns across nation. Also caters to the exports mainly in United States and MiddleEastern countries.
The Manufacturing Process Cigarette manufacturing process involves processing of tobacco leaf and stem to different tobacco blends, which is called cut tobacco Cut tobacco is then converted to cigarettes using other raw materials for making cigarettes and packing them in various forms as per the trading requirements ITD receives various grades of Tobacco Leaf and Stem from Indian Leaf Tobacco Division (ILTD) based mainly in Guntur, Andhra Pradesh Processed to form tobacco blends at one of the three Tobacco Processing Units at Bangalore, Saharanpur and Munger.
Tobacco Processing Unit is called PMD or Primary Manufacturing Division. The cut tobacco is then sent to the Secondary Manufacturing Division (SMD) for making and packing cigarettes
Three OCMs and Kidderpore factory don’t have in-house PMD, and are supplied with tobacco from one of the three ITD PMDs. Rest of the raw material (WMS) required for making or packing cigarettes is provided to all factories from various WMS suppliers, most of which are part of ITC Ltd At SMD, there are two processes: Making and Packing ✔ Making process is the rolling of cigarette sticks ✔ Packing process is packing of these cigarette sticks in the cigarette packets of various pack styles. Cigarettes are categorized in different segments based on filter or non-filter type, cigarette length, circumference, pack style, filter length and cigarette placement. Under each segment there are various brands. Finished Good (Cigarettes) are supplied from the factories to godowns using mainly road and rail transportation. From marketing godowns, the FG flows to wholesale distributors and from there on to retail channel. Requirement for each warehouse is expressed brand-wise.
ITD Supply Chain Network
YEAR 1901 STRATEGY The British and American Tobacco Entry Company expanded their trade into India and set up three companies,
which later together became the Imperial Tobacco Company India, i.e. the present Indian Tobacco 1928 Company (ITC) Ltd. The Indian Leaf Tobacco Division A market oriented concentric (ILTD) of ITC experimented on the diversification. black soils of Guntur, Andhra Pradesh and successfully cultivated 1929 Virginia Tobacco. Commercial and by the ILTD. The large-scale A Horizontal Integration. company barns,
production of tobacco was initiated established demonstration
provided technical guidance to them and encouraged local farmers to grow tobacco by providing financial assistance to construct barns, purchase fertilizers, wood fuel, etc. Slowly, tobacco cultivation spread to all the coastal districts of Andhra 1933 Pradesh. The ILTD introduced flue-cured International Expansion Virginia (FCV) tobacco into the international market. 1936 A cigarette tobacco research station Horizontal was established in Guntur to study integration the effect of soil and manure on the 1940 flavour of tobacco. Cultivation of FCV tobacco was Horizontal expansion initiated in north Bihar (1940), Uttar backward
Pradesh (1940) and Gujarat (1945– 1956 1946). The Tobacco Export Promotion Horizontal forward integration
Council (TEPC) was established to support, protect and promote the 1998 export of tobacco Rs 375-crore invested for leaf- Horizontal processing reduce 1998 plants and and modern integratipon enhance concentric storage facilities to "improve quality, wastage productivity." ITC will modernise its cigarette Technological plants by inducting "contemporary" diversification technology, involving Rs 900 crore over the next five years. backward
DISTRIBUTION NETWORK(Tobacco Div.)
Bangalore Calcutta Saharanpur Munger
WHOLESALEDISTRIBUTORS (60 PERBRANCH)
STARS • Hotels • Paperboards/
QUESTION MARK • FMCG- Others Packaging. DOGS
Agri business Maybe ITC Infotech.
COWS • FMCG-Cigarettes
SWOT ANALYSIS ITC is one of India's biggest and best-known private sector companies. In fact it is one of the World's most high profile consumer operations. Its businesses and brands are focused almost entirely on the Indian markets, and despite being most well-known for its tobacco brands such as Gold Flake, the business is now diversifying into new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors.
ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC used its experience of transporting and distributing tobacco products to remote and distant parts of India to the advantage of its FMCG products. Weaknesses The company's original business was traded in tobacco. ITC stands for Imperial Tobacco Company of India Limited. It is interesting that a business that is now so involved in branding continues to use its original name, despite the negative connection of tobacco with poor health and premature death. To fund its cash guzzling FMCG start-up, the company is
still dependant upon its tobacco revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidised by its tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone hold 70% of the tobacco market. Opportunities ITC is moving into new and emerging sectors including Information Technology, supporting business solutions. Threats The obvious threat is from competition, both domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that ultimately new products and services will be made available. Western companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings. ITC's opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of competition will alter in the medium-term. Then ITC will need to decide whether being a diversified conglomerate is the most competitive strategic formation for a secure future. Competitors In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.